The Truth About Oil Prices

Read this if you are unsure where oil prices are going next.

After the recent surge in crude oil prices, experts and analysts alike seem to have different opinions about where oil prices are headed next.

On one side, there are those who claim that speculators have drove oil prices too high and have caused a bubble which will burst sooner or later

Others simply point to demand and supply imbalances as a reason for the spike, and they think that oil is going to go even higher (Goldman Sachs’ Arjun Murti think its going to $200 in the next 6-24 months)

With of these “Experts” are correct?

Actually, both are correct to a certain extent, depending on the time frame you are looking at.

Here is my prediction :

In the short run : Oil will continue to surge higher and higher, until it reaches a peak, where it will fall back to around $100.

In the long run : Oil will resume its climb to $200 and then to $300

1) Currently, oil is trading at $132. Greedy speculators will continue to fuel this spike until it peaks at $150 to $200 (The prices that T.Boone Pickens and Arjun Murti gave for oil) , where people will start taking profits.

2) Once it peaks, everyone will be trying to get out of their oil positions, and oil prices will drop as fast as it as risen, consistent with the bubble theory.

However, I wont call it a bubble bursting because there will be a strong resistance at the $100 level, since there is a real demand for oil. (i.e. If oil falls to $99, traders who really need oil will snap it up at that price)

Oil will continue to try penetrating below the $100 level, but it will ultimately fail

3) Once the mania has subsided, demand and supply imbalances will return to the market and continue oil’s spike

For your information : I do have stocks in Oil ETFs (DBO), and I am waiting for oil to reach its peak before exiting my position and then snapping up cheap oil at around $100

Tags: oil bubble, prediction, speculators